LONDON (Reuters) – Britain’s markets watchdog published tougher rules on Monday for funds that invest in hard to sell assets like property, saying investors must get better warnings about the risks they face.
The Financial Conduct Authority (FCA) said it will introduce a new category of funds investing in inherently illiquid assets, or FIIA, from September 2020.
These funds will be subject to additional requirements, including standard risk warnings in financial promotions, enhanced depositary oversight, and a requirement to produce liquidity risk contingency plans, it said.
The watchdog published draft rules in October 2018 to reduce harm for retail investors in funds that hold illiquid assets.
Funds investing in property had to be “gated” to suspend redemptions during market stress immediately after the result of Britain’s referendum to leave the European Union in June 2016.
The funds were unable to meet daily redemption requests.
The FCA has come under pressure from lawmakers to intervene after high-profile fund manager Neil Woodford suspended his flagship equity income fund (WEIF) in June, which promised daily redemptions.
The Woodford fund was unable to meet a flood of redemptions and was found to have breached a rule limiting how much it can invest in illiquid assets.
The FCA said on Monday it has assessed whether there were any lessons that might be relevant to the issues covered in its new rules.
It said its new rules don’t apply to EU-regulated funds known as UCITS, that include the Woodford fund.
“The suspension of the WEIF underlines the importance of effective liquidity management in open-ended funds more generally,” the FCA said.
(Reporting by Huw Jones, editing by Carolyn Cohn)